Discussion paper

DP4039 Inside-Outside Money Competition

We study how competition from privately-supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if ?inside monies? can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a ?benevolent? government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.


Marimon, R, P Teles and J Nicolini (2003), ‘DP4039 Inside-Outside Money Competition‘, CEPR Discussion Paper No. 4039. CEPR Press, Paris & London. https://cepr.org/publications/dp4039